Consumer prices rise modestly in 2012

Dec. 14, 2012
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by USA TODAY

by USA TODAY

WASHINGTON (AP) -- A steep fall in gas costs pushed down a measure of U.S. consumer prices last month, keeping inflation mild.

The seasonally adjusted consumer price index dropped 0.3% in November from October, the Labor Department said Friday. Gas prices fell 7.4%, the steepest drop in nearly four years. That offset a 0.2% rise in food prices.

In the past 12 months, consumer prices have risen 1.8%, down from October's 12-month increase of 2.2%.

Excluding volatile food and gas, prices ticked up 0.1% in November and have risen 1.9% the past year. Higher rents, airline fares and new cars pushed up the so-called "core" measure of consumer prices. The cost of clothing and used cars fell.

Modest inflation leaves consumers with more money to spend, which can boost economic growth. Lower inflation also makes it easier for the Federal Reserve to continue efforts to rekindle the economy. If the Fed were worried that prices are rising too fast, it might have to raise interest rates.

The Fed said Wednesday that it now plans to keep the short-term interest rate it controls at nearly zero until the unemployment rate falls to at least 6.5% and inflation isn't expected to top 2.5% in the next two years.

It was the clearest sign yet that they will keep rates ultra-low even after unemployment falls further and the economy picks up.

Unemployment was 7.7% last month and the Fed projects it will stay above 6.5% until late 2015. The Fed also projects inflation will stay at or below 2% the next three years.

The Fed also said it would continue purchasing $85 billion in Treasury bonds and mortgage-backed securities each month in an effort to push down longer-term interest rates.

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